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Thursday, July 09, 2009

Why No Posting?

I've been busy. Very busy. In fact, I shouldn't even be taking time to blog about why I haven't done much blogging. I've got a "major sequence exam" already overdue, and a prospectus defense to prepare by the end of the summer. So posting will be light for the next couple of months.

The final point is that while people commonly think of administrative costs as "wasted", in fact, they are an important part of the market system. As Alex Tabarrok points out, and I have myself from time to time, many of the arguments in favor of national health care are literally socialist. And no, I am not using that term to apply to "anyone who is in favor of redistribution" or "government programs". But consider the following common arguments:

National health care will be cheaper because we will reduce administrative overhead

National health care will reduce wasteful competition in the form of me-too drugs

National health care will reduce wasteful competition in the form of advertising and other marketing expenses

National health care will allow us to rationally distribute care to where it does the most good rather than the current messy, wasteful hodge-podge

National health care will use resources for production instead of profits

National health care will achieve economies of scale in purchasing and record-keeping

People will not overuse free goods because there are hard limits to desired consumption.

These were all arguments advanced in favor of socialism. Contrary to popular conservative belief, socialists were not unfamilier with either the incentive problems of communism (people will not work hard if there's no benefit to doing so) or the Hayekian argument about the value of prices, aka the Socialist Calculation Problem. Rather, smart socialists thought that they could overcome these problems with a combination of status competitions (Hero of the Soviet Union, Second Class) and massive efficiencies gained by wringing all that fragmented, wasteful competition out of the system. Economists who would be ashamed to make these sorts of arguments about Proctor and Gamble or the used car market suddenly start parroting these things as if they hadn't been thoroughly discredited by the last seventy years.

. . . .

[A]s Ezra points out, people in Germany and France are not dying in the streets. So centralization does work better on health care than it does in steel.

But I'd argue that the difference is that Germany and France, unlike the Soviet Union, have companies which produce in American markets to provide them products.
One key thing to remember is that there's a big difference between a situation where the government is a sizeable buyer/producer, and one where the government is essentially the only buyer/producer. In the latter case, the market still works, even if the government presence distorts it--prices are set by supply and demand, research is done, and so forth. Indeed, it is not well appreciated on the left how dependent Medicare is on private insurers to tell them what the competitive price is for the treatments and products it pays for--if the private sector went away, Medicare would have to develop some sort of pricing system, and so would all the health care systems abroad. Once the government becomes the dominant player, however, everything changes.

. . . .

Right now, the US has a market--no matter how screwed up--for medical goods. It is not a good market. But no one in the market, except Medicare, has enough pricing power to totally undermine the market mechanism, so it grinds out an equilibrium that bears some resemblance to consumer demand. In turn, Europe can buy those market-produced products. But if you kill the last market, everything suddenly looks very different. What's the right price for innovation? What should we research? Those questions stop being decided on the basis of the number of consumers served, and start being decided on the basis of who has the best lobby.

There's one more difference, which is that health care is not transportable. When British coal was overpriced and delivered erratically, this was obvious, because other countries had a steady supply of the commodity at a lower price. Healthcare is hard to measure and impossible to transship, and almost no one consumes health care internationally (though I'll note that as the internet has facilitated comparisons, Europeans have become disenchanted with their rationing boards).